Question

if estimated land value is 225,000 total net operating income is 85,000 and interest on the estimated land value is 14% per year the annual net income residual to the building on the land is___________.

Answer 1

Answer:

Residual income is $53,500

Explanation:

To compute residual income, we have to find first the required minimum return by multiplying the value of an asset by the rate of return. Afterwards, we will deduct the minimum rate of return from the total net operating income of the period.

Residual income = net operating income - (minimum rate of return x value of an asset)

• = $85,000 - ( 14% x $225,000 )

• = $85,000 - $31,500

• = $53,500 (answer)